Income Drawdown
Income Drawdown
You can start taking an income or lump sums (or both) from the age of 55, this is set to change to 57 on 6 April 2028. Anyone born on or after 6 April 1973 may see their minimum pension age move to 57. This means you might not be able to take some or all of your pension benefits until you reach that age, which could be up to two years later than expected.
You can take a pension commencement lump sum of up to 25% of the value of your pension savings, which is completely Tax free (upto a maximum of £268,275)
You then have these options: –
- You can keep your pension pot where it is and delay taking money from your pension pot to allow you to consider your options. Reaching age 55 (57 from 2028) or the age you agreed with your pension provider to retire is not a deadline to act. Delaying taking your money may give your pension pot a chance to grow, but it could go down in value too.
- You can take the whole amount as a single lump sum. A quarter (25%) of your pension pot can usually be taken tax-free – the rest will be taxed. You will need to plan how you will provide an income for the rest of your retirement.
- You can leave your money in your pension pot and take lump sums from it as and when you need, until your money runs out.
- You can leave your money in your pension and take an income from it. Any money left in your pension remains invested, which may give it a chance to grow, but it could go down in value too. A quarter (25%) of your pension pot can usually be taken tax-free and any other withdrawals will be taxable, whether you take them as a regular income or as lump sums. You may need to move your pension to a different provider to do this.
- A lifelong, regular income (also known as an annuity) provides you with a guarantee that the income will last as long as you live. A quarter (25%) of your pension pot can usually be taken tax-free and any other payments will be taxed.
- You can choose different options at different times or for different parts of your pension pot, depending on what suits your needs.
Tax Implications
Whatever amount you withdraw from your pension pot will be classified as income and will be subject to the marginal rate of income tax, you are only allowed to withdraw up to 25% tax-free of your pension fund.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
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